Articles by Don Quijones

After years of dodgy accounting and mismanagement.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The past five days have been brutal for two once-emblematic Spanish companies, Abengoa and OHL. Four years ago, the two firms were among the 35 largest listed companies in Spain. OHL was a global construction colossus that was involved in one of the world’s most ambitious and infrastructure projects, the high-speed railway line between the Saudi Arabian cities of Mecca and Medina.
Abengoa was a world leader in the renewable energy sector, with operations across the globe. But it grew so fast and took on so much debt that it needed to hide many of its liabilities. Like Enron, it could not keep the game going on for long, and in 2015 it collapsed under the weight of its own

In the feverish reshuffling of financial services for a post-Brexit world, London still comes out ahead, but less so.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
As two years of Brexit negotiations finally come to a head and all eyes are on British Prime Minister Theresa May’s frantic efforts to get the draft deal passed, France is making a big move on the City of London’s gold market. As Reuters reported Monday, the Bank of France has partnered with mega-bank JP Morgan Chase, one of the world’s largest bullion trading banks, to offer global central banks and sovereign wealth funds the full gamut of swaps, leases, and gold deposits.
Sylvie Goulard, the Bank of France’s deputy governor, recently wrote in The Alchemist, the in-house journal for the London Bullion

The company with 70,000 employees is “circling the drain.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
When UK construction giant Carillion collapsed in January, it shook the foundations of Britain’s outsourcing industry to its core, casting a harsh light on the high-growth, thinning-margin, poor cash-flow, high-debt business model that has come to dominate the sector. It was the country’s biggest corporate bankruptcy in years. But now another outsourcing firm may be about to follow Carillion’s doomed footsteps.
That firm’s name is Interserve. It employs over 70,000 people worldwide, with around 20,000 employees based in the UK. On Monday its shares plunged over 30% to 30 pence a piece, their lowest level in 30 years, before rebounding somewhat. They’re down 95%

Part of a global trend, as exasperated consumers are squealing, but no country has threatened to do what Mexico proposed.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico’s stocks are plummeting, with the S&P/BMV IPC index down 5.8% on Thursday — the worst drop in seven years — and another 2.8% by midday on Friday. The dollar-denominated ETF, iShares MSCI Mexico [EWW], plunged 11% over the past three days and is down 22% since August 8:

What happened? Mexican stocks, which had been caught up in the sell-off in October and the cancellation of the mega-airport and corruption project at the end of October, bounced a little in November, but then took another hit on Thursday when a senior Mexican senator from the president-elect’s party proposed a bill that would ban

City of London Just Lost a $240-Billion-a-day Financial Market.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The City of London was just dealt its biggest Brexit-related blow following an announcement by American financial markets operator CME Group that it is shifting its European market for short-term financing, the largest in the EU, out of London to Amsterdam. Worried about the dense fog of regulatory uncertainty hanging over London’s future, the firm wants to ensure that its continental clients can continue using its services even in the event of a no-deal Brexit in March.
The decision was apparently taken before CME’s acquisition of BrokerTec — as the company is known — from NEX Group PLC was given the green light by UK market regulators last week. It is the

There’s nothing like a sympathetic Supreme Court.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spanish bank stocks had their best day’s trading for months on Wednesday, with the MCE Bank Index rising by 2.6%. At one point the stock of interminably troubled Banco Sabadell had soared over 13%, before settling to finish the day up 2.5%. The reason for such market exuberance was perfectly rational: After two days of deliberation, 28 Supreme Court judges on Tuesday evening voted by a thin margin (15 to 13) to strike down a previous ruling by a different set of Supreme Court judges that would have hurt the banks’ lending business by forcing them, rather than mortgage borrowers, to pay the contractual tax on mortgage loans.
It’s the first time in the Supreme Court’s history

Mexico supplies 45% of global sales, but this is Mexico.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Mexico is the world’s largest supplier of avocado. “Green Gold,” as Mexicans call their beloved staple fruit and lucrative cash crop, accounts for around 45% of global sales. Over two-thirds of those avocado are grown in the state of Michoacán. But in widespread industrial action over the weekend, more than two-thirds of the state’s avocado orchards were on lock-down and many of the roads used to transport the produce were blocked as growers accused packing firms of using inferior quality, lower priced produce from other regions to ship to the US market.
Michoacán growers are the only suppliers included in the US Department of Agriculture certified export program,

But new high-end towers will continue to flood the market.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After decades of mind-boggling growth, home prices in metropolitan London, according to official numbers, started to fall this year, if barely. Between March and September, they slid 2.3%. But it’s a lot worse in the most expensive parts of the city: Prices in central London have already dropped 15% since 2014, according to James Hyman, head of the residential agency division at Cluttons. He expects another 7% drop over the next year and a half. And the total volume of transactions has fallen by a fifth, according to Residential Analysts.
In 2014, a change in the stamp duty made buying high-end homes in the UK more costly. In London, the city that hosts the highest

A “fraud on the people.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The UK government has finally called it quits on its much-abhorred Private Finance Initiative (PFI), which for over two decades allowed bankers and financial consultants to gorge on massively inflated interest rates and fees for run-of-the-mill infrastructure projects, while saddling taxpayers with debts they will struggle to repay.
“I have never signed off a PFI contract as chancellor and I can confirm today that I never will,” said UK Chancellor of Exchequer Philip Hammond during his 2018 budget address. “I can announce that the government will abolish the use of PFI and PF2 for future projects.”
The United Kingdom is widely considered to be the birthplace of the modern incarnation of the

The French megabanks are on the hook.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
France was just served with a stark reminder of an inconvenient truth: €277 billion of Italian government debt — the equivalent of 14% of French GDP — is owed to French banks. Given that Italy’s government is currently locked in an existential blinking match with both the European Commission and the ECB over its budget plan for 2019, this could be a big problem for France.
On Friday, France’s finance minister, Bruno Le Maire, urged the commission to “reach out to Italy” after rejecting the country’s draft 2019 budget for breaking EU rules on public spending. Le Maire also conceded that while contagion in the Eurozone was definitely contained, the Eurozone “is not sufficiently armed to

Now everything is up in the air, so to speak.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The results are finally in from one of the most controversial voting exercises ever held in Mexico. The people — albeit a tiny fraction of the whole electorate — have voted to scrap a new $13-billion airport for the capital that is almost one-third finished, at least $4 billion over budget, and mired in allegations of corruption and lack of transparency, dealing a hefty blow to some of Mexico’s richest business leaders, foreign construction companies, and the global lenders that have helped finance the project.
Roughly a million people, just over 1% of Mexico’s electorate, participated in the four-day voting exercise. They were asked whether the next government should finish

Cash is less of a threat to central bank policies when interest rates rise above zero.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Sweden’s Riksbank has become the first central bank in the 21st century to take concrete measures to ensure that cash does not disappear as a means of payment from the financial system. To that end, the Riksbank proposes, in a document published on its website, to make it mandatory for all banks and financial institutions to offer cash services.
The pronouncement comes in response to a recent policy suggestion by the Riksbank Committee that only the country’s six major banks should be obligated to continue offering cash services.
That prompted a backlash from Sweden’s competition watchdog, which argued that the plan would distort

A fiasco threatens to spiral out of control.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In the last five trading days, the shares of Spain’s five largest listed banks have re-energized their plunge that had started at the end of January and now amounts to 40%. The cause for the recent drop? A shock ruling by Spain’s Supreme Court that lenders, rather than mortgage borrowers, should pay the contractual tax on mortgage loans, on the grounds that the lender is the only party with an interest in getting the loan certified by a notary, since this is what enables the bank to begin foreclosure proceedings if the borrower defaults on payments.
Even the Supreme Court’s desperate decision last Friday to suspend its own ruling a day after it had announced the ruling, a

But it’s going to be tough; he’ll need more than luck to pull it off.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Moody’s has rated the $2 billion of senior unsecured notes due 2029 that Mexico’s state-owned oil company Pemex is in the process of issuing one notch above junk. Pemex is offering to pay a coupon interest rate of 6.5%. In its report on Friday, Moody’s blamed the company’s “weak liquidity, a heavy tax burden and the resulting weak free cash flow, high financial leverage and low interest coverage; and challenges related to crude production and reserve replacement.”
Moody’s is also worried about the large amounts of debt coming due in 2020 and beyond. And Pemex will continue to be “dependent on debt capital markets to fund negative free cash flow,” it

A cashless society could have “adverse collective outcomes.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In recent months, a slew of political and financial institutions have raised concerns about the march toward a cashless economy. They include:
The ECB warned that a phase-out of cash could pose a serious risk to the financial system. Depending too heavily on electronic payment systems could expose financial systems to catastrophic failures in the event of power outages or cyber attacks. The European Commission has also backed off is war on cash.
The People’s Bank of China announced that all businesses in China that are not e-commerce must resume accepting cash or risk being investigated, and cautioned businesses against hyping the “cashless” idea when promoting

Plunging bank stocks got the Court’s attention, or something.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
That was fast: Spain’s Supreme Court on Friday flip-flopped on its own ruling announced on Thursday that had sent bank stocks plunging.
It started like this: Thursday morning, Spain’s Supreme Court did something nobody was expecting. It ruled that the country’s banks must pay stamp duty on mortgage loans, which would set them back billions of euros in legal fees and compensation while heaping further pressure on their lending business. News of the ruling sent many of the banks’ shares tumbling to new lows for the year while also heaping pressure on Spain’s ten-year bonds.
“The Supreme Court states that the person who must pay the stamp duty in the public deeds

Outside Italy, credit markets are sanguine, and no one has mentioned “whatever it takes.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Italy’s government bonds are sinking and their yields are spiking. There are plenty of reasons, including possible downgrades by Moody’s and/or Standard and Poor’s later this month. If it is a one-notch downgrade, Italy’s credit rating will be one notch above junk. If it is a two-notch down-grade, as some are fearing, Italy’s credit rating will be junk. That the Italian government remains stuck on its deficit-busting budget, which will almost certainly be rejected by the European Commission, is not helpful either. Today, the 10-year yield jumped nearly 20 basis points to 3.74%, the highest since February 2014. Note that the ECB’s

Italian and Spanish construction companies with global projects on the brink or over the brink.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The golden age is long over for Europe’s construction companies. In the wake of the longest recession of the postwar era, their two largest sources of finance — governments and banks — are either unable or unwilling to spend or lend, leaving many once-thriving companies on the brink.
Last July, the Spanish building firm Isolux Corsan declared bankruptcy, leaving 3,884 workers and 119 global construction projects in the lurch. Seven months after its collapse, the bankruptcy receivers announced that the group’s total had €4 billion more in debt than previously disclosed.
At the beginning of this year it was UK outsourcing giant

BlackRock is “a market power that no state can control anymore.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The ECB’s latest biannual stress tests are almost over. For months legions of financial regulators have been poking around in the soft financial underbellies of the Eurozone’s 130 largest banks looking for signs of weakness. Presumably, the worst causes or symptoms of financial duress have been largely sidelined or ignored, just as happened in 2016 when Spain’s then-sixth largest bank, Banco Popular, passed muster just months before its collapse.
This year, the ECB has again called on the assistance of the world’s largest asset management fund, BlackRock, to conduct its health check of Europe’s banking sector. The stress tests are being spearheaded by the

The power of Collateralized Loan Obligations.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
“The global leveraged loan market is larger than – and growing as quickly as – the US subprime mortgage market was in 2006,” said the Bank of England’s Financial Policy Committee in the statement from its latest meeting. And the committee is “concerned by the rapid growth of leveraged lending.”
In terms of magnitude, the US and EU “leveraged loan” market combined now exceeds $1.3 trillion, up from $50 billion at the turn of the century.
A “leveraged loan” is a loan that is extended to junk-rated (BB+ or lower), over-indebted companies. These loans are considered too risky for banks to keep on their books. Instead, banks sell them to loan funds, or they package them into highly

The clandestine role of the Spanish government in a run on deposits that drained €29 billion from Catalan banks.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Just over a year has passed since over two million people in Catalonia voted in a banned referendum to leave Spain. On that day, the separatists were given a brutal lesson in the raw power of state violence. Days later, they were given another harsh lesson, this time in the fickleness of money. Within days of holding the vote, which was brutally suppressed but not prevented by Spanish police, Spain’s north eastern region was forced to watch as one after another of its brand names moved their headquarters, at least on paper, to other parts of Spain.
Among the first companies to up sticks were Catalonia’s two

Who will blink first?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
A serious showdown is brewing in the Eurozone as Italy’s anti-establishment coalition government takes on the EU establishment in a struggle that could have major ramifications for Europe’s monetary union. The cause of the discord is the Italian government’s plan to expand Italy’s budget for 2019, in contravention of previous budget agreements with Brussels.
The government has set a public deficit target for next year of 2.4% of GDP, three times higher than the previous government’s pledge. It’s a big ask for a country that already boasts a debt-to-GDP ratio of 131%, the second highest in Europe behind Greece. To justify its ambitious “anti-poverty” spending plans, proposed tax cuts, and pension

The economic miracle fueled by foreign-currency debt.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The Bank of Turkey’s decision mid-September to hike its policy rate from 17.75% to 24% may have temporarily stemmed the rout in the Turkish lira, but the hiatus is now over. This week, the pressure is back on the nation’s currency, which is down almost 40% against the US dollar year to date, as well on its beleaguered banks, 20 of which were slapped with another downgrade by Fitch Ratings.
The lenders, Fitch said, are “more likely to come under pressure as a result of the further depreciation of the Turkish lira (by about 20% against the US dollar since the last rating review), the spike in interest rates (driven by the increase in the policy rate to 24% from 17.75% on

And why are Bank of Mexico executives and employees resigning in droves?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Around 200 central bank employees, including 20 senior executives, have left their posts at the Bank of Mexico (Banxico) since presidential elections on July 1 handed a resounding victory to populist Andrés Manual Lopez Obrador (or AMLO). Unsurprisingly, their sudden departure has a lot to do with money.
One of AMLO’s manifesto pledges was to slash salaries for senior government officials and bureaucrats as part of sweeping cost-cutting measures. So far, he’s kept to his word. Last week, Congress, now under the majority control of his party, Morena, passed a law that will make it impossible for any state employee to earn more than the president. The

How to prevent its shares from dropping below €0.01?
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Abengoa, the Spanish green energy giant — with big entities in the US, Canada, Mexico, and other countries — famed for cooking its books with Enron-esque aplomb before collapsing in spectacular fashion a few years ago, is back in trouble.
Now, just two years after rising from the ashes of its monstrous debt pile, the company has purportedly asked its long-term advisor, Lazard, to set up a new agreement with creditors as it struggles to repay €142 million of outstanding debt to “holdout” bondholders, who refused to accept the terms of a 2016 restructuring deal.
Abengoa had assured its investors that it would reach an agreement with the holdout bondholders by May 31. But

Payment chaos: For bottom-line-obsessed bank executives, IT systems are an expense to be slashed. The results are in.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Internet banking has become a crisis-prone business in the UK, as the online platforms of big banks suffer regular outages and other forms of IT disruption.
Friday morning, the online systems of the Royal Bank of Scotland, Ulster Bank and Natwest — all part of the RBS Banking Group — crashed in unison, leaving millions of customers unable to pay bills or view their balance on their online and mobile accounts. The group has 19 million customers in the UK and Republic of Ireland and 5.5 million active mobile app users.
After around five hours of chaos, the RBS Group announced that the problems had been

Time is running out. March 29 is the deadline. Urgent action is needed. But it’s not happening.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
With less than six-and-a-half months to go before the UK’s deadline to leave the EU expires, progress is still lacking in the Brexit negotiations, in particular on crunch issues such as the Irish border and the equivalency of financial services. As the doomsday clock ticks down, jitters are rising on both sides of the English Channel, particularly the English-speaking one.
On Monday, Moody’s said the probability of a no-deal Brexit has “risen materially,” and “would be negative for an array of issuers.” Such an outcome could bring with it a host of ugly consequences for the UK economy, ranging from a further weakening pound to

They were supposed to protect banks and punish homeowners in difficulties — but they didn’t prevent banks from collapsing.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In a somewhat unexpected move, the EU Advocate General, Maciej Szpunar, recommended that all Spanish mortgages containing a clause allowing banks to initiate foreclosure proceedings on the basis of just one missed payment is abusive and therefore should be annulled. While the EU Advocate’s ruling is not binding, in most cases it presages the ruling of the Court of Justice of the European Union (CJEU), which is expected to take place in the coming weeks.
If the CJEU does draw the same conclusion, it will mean that many mortgage contracts will have to be annulled, potentially paralyzing thousands of

Systematic “Petro-Plunder,” as we’ve come to call it, eats into Mexico’s energy sector.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
In the early hours of Wednesday, September 12, a massive leak of highly flammable liquefied petroleum gas (LPG) escaped into the quiet air of Villa Frontera, a suburb on the northern edge of Mexico’s fourth largest city, Puebla. Authorities evacuated thousands of local residents. The apparent cause of the leak was a botched pipeline tap by one of Mexico’s notorious gangs of oil thieves, or huachicoleros (pronounced “watchy-coh-leh-rohs”), who are terrorizing communities, draining national coffers, and threatening the viability of Mexico’s already debilitated energy sector.
The gas leak in Villa Frontera is the latest sign that the

“Cash retentions” by large companies come under attack in the UK.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The bankruptcy of UK outsourcing behemoth Carillion in January has left in its wake a trail of financial destruction and mayhem, but it may end up having a positive legacy. More than 200 British MPs (out of a total of 650) have backed a campaign to crack down on construction firms which, like Carillion, routinely pay their suppliers late to spruce up their own balance sheets. The Aldous Bill, named after the MP who is leading the campaign, Peter Aldous, is intended to put an end to this practice.
Late payment of suppliers and subcontractors is a widespread problem in the UK, and many other countries. Perversely, the worst offenders are often large companies